MCAP Chops 1- and 2-year Comp

compensationWhen MCAP announced its recent 2.39% 1-year special, it got a lot of brokers excited. It’s an ideal option for consumers needing a short-term mortgage and it’s an outstanding rate offering for brokers.

The bad news (for brokers) is that MCAP unexpectedly slashed its 1- and 2-year finder’s fees shortly after those specials were announced.

On the 1-year term, for example, it cut total broker compensation by 40-55%. MCAP’s compensation on 1- and 2-year terms is now virtually the lowest in the industry.

But this was a necessary tradeoff, says the company’s Vice President, Sales, Gino Tieri.

“We were asked by a number of large producers for a low-cost, short-term solution,” Tieri says. To do that, he says MCAP had little choice but to drop compensation to subsidize the rate.

It will now be interesting to see how many brokers push MCAP’s short-term products, given such a thin incentive.

Curiously, top-tier brokers at RMG Mortgages (another division within MCAP) have access to a slightly higher 2.49% 1-year rate, yet receive disproportionately better compensation.

National Bank is another lender that offers better comp on 1-year terms, assuming you’re a status broker who matches MCAP’s 2.39% rate.

One may think that making less for one year isn’t a big deal given the chance to renew the client again in 12 months. But the fact is, you have to win over the customer before the lender’s retention department does. And the odds are not on the side of most brokers, since 78% of renewers stay with their existing lender (Source: CAAMP).

That said, there’s one thing that’s great about MCAP from a mortgage broker’s standpoint. MCAP refers clients back to their originator if the customer calls in for a renewal quote and indicates they’re already working with that broker. Most lenders’ retention departments don’t extend brokers that courtesy.

Rob McLister, CMT

  1. “When MCAP announced its recent 2.39% 1-year special, it got a lot of brokers excited. It’s an ideal option for consumers needing a short-term mortgage and it’s an oustanding rate offering for brokers.” … “It will be now be interesting to see how many brokers push MCAP’s short-term products, given such a thin incentive.”
    So let me get this straight. It was a great product for the client right up until MCAP cut the finder’s fee?
    Where does the line fall between doing what’s in the best interests of your client versus doing what is in the best interests of yourself, as a broker?
    I’ve heard the “holier than thou, walk on water” speech too many times from the broker community when it comes to putting the client’s interests first, but this really puts things into perspective, no?

  2. Hi N.S.,
    It’s a fair question and it’s good that you brought it up. We write about stuff like this in a public forum partly because it’s healthy to bring issues like this to light.
    At the end of the day, a mortgage professional is one part adviser and one part salesperson. This applies whether the person works for a bank, credit union, other lender or brokerage. The sales aspect has to be there because otherwise a mortgage professional doesn’t survive. But that doesn’t mean they can’t deliver good advice.
    Some mortgage planners balance their fiduciary responsibility better than others, but there is a limit. The numbers put this into perspective.
    The average mortgage in Canada is roughly $170,000. After tax, brokerage splits, and expenses, most brokers might end up making $150-$200 on a 1-year MCAP deal. If the average hours spent per client is seven (it may be more or less, and includes consultations, application preparation, approval processing, fulfillment, and post-closing servicing) then you’re effective hourly wage is somewhere around $21-28. But you must also include time spent with clients who don’t close and time spent on your other business responsibilities, which lowers the broker’s hourly earnings (and the time he/she can spend with other clients) considerably.
    Meanwhile, there’s a lender down the street that offers the same product with similar features or better for double the compensation. Which would you pick? This is a question that goes through virtually every mortgage planner’s mind every single day. Good mortgage planners always want to do the right thing for every client. The caveat is that they have to earn enough of a living to show up to work the next day and compensate for the guidance and value they provide.

  3. Two enthusiastic thumbs up to your response Rob. At the end of the day, most brokers will offer you the best rate and product available. Can that be said for the big banks who get paid more to sell you a higher rate?

  4. I think money always influences advice, even if only subconsciously. Even doctors are swayed by gifts, wining and dining with drug reps, and other drug co. incentives. Why do you think they under-prescribe generic drugs? I think it’s a matter of buyer beware. You have to ask the right questions of a mortgage consultant, especially about the available alternatives.

  5. Hi Rob,
    As always, I appreciate your well written and informed responses to questions such as the one I brought up.
    Don’t get me wrong, I’m a capitalist at heart so I understand and appreciate both edges of the sword. A broker’s got to eat after all…just like a banker.

  6. If there were no other alternatives and my client really needed a 1-year fixed, I’d sell this product even though it means working for peanuts. A client relationship doesn’t span just one term. I’d just have to pray for a lot of referrals. :)

  7. great response Rob. no broker wants to work for peanuts. there are far less demanding jobs that one can pursue if they’re happy making a living wage. i don’t know about the rest of you, but i didn’t get into this business to make a living wage. i did it to make money and a ton of it, but i knew in my heart, at the end of the day, compensation always played a part in the product i pushed. it’s only natural. it’s nothing to be ashamed of, we’re only human. we’re salespeople after all.
    blame the compensation model if you will. but in my mind, a true advisor is one that is not influenced by varying levels of compensation. only fee based advisors fit this ideal. insurance, mutual fund, mortgage professionals are all simply glorified sales people unless they’re fee based. how many of you are going to volunteer a 1 year term to your client when you know you’re going to make dick all? crickets…
    just remember, as times get more lean for you, your going to face the question more and more. do i get the client the absolute best rate and buy it down as much as i can, or do make a few extra bps and feed my family this week. sleep well friends.

  8. Good post and discussion. In days gone by whn i was a broker i remember at least one lender offered a 1 year convertible option where client had option to lock in for a longer term at lender’s then discounted rate before the year term matures at any time with no fee or penalty (like a 5 year variable). Broker automatically got paid an additional finder fee based upon th difference of the two tems.
    Rob does any lender offer a 1 Year convertible term option at competitive rate today with additional compensation pid automatically to the broker if client locks into longer term?

  9. Do the most successful brokers just broker deals only? Or are they fully invested in the real estate business. Ie investors, re agents, industry trainers etc??? What is the minimum number of closings per month that a broker needs to not think of compensation when advising clients?

  10. Curious strategy. Seems like they are either setting up a bait and switch process or testing the compensation floor. The times are getting more interesting.

  11. This does bring up an interesting point. On the one hand, the broker needs to make a living. They also know that giving the client the best deal will get them referrals and repeat business.
    The problem then becomes do you take the cut in pay now in hopes you can get a better deal in the future? Or do you go with the guarantee cash now?
    I would hope that a broker would see that ethically they would go for the best interest of the client. And also this works out for the best interest for them as well.

  12. I just found out about this the hard way. After the weekend we will no longer be advertising their 1 & 2 year products.

  13. It’s more about the broker’s ethics and business model than their number of deals per month. Some brokers only stick to a small number of lenders. Some brokers use a lot of lenders.
    I’d recommend finding one that has top status with at least 7-8 lenders and personally does more than $15 million in volume per year.

  14. Hi F.B.,
    Thanks for the post. There may be lenders that let you convert a 1-year into a variable without penalty, but I can’t think of any. FirstLine used to have this product but it’s gone now. If anyone knows of an alternative, perhaps they can post it.
    Some lenders do let you convert from a 1-year fixed to a longer-term fixed rate (Scotia for example) and others let you “blend” a 1-year fixed into a longer fixed rate. But many others charge a penalty to refinance into a different term before maturity.

Your email address will not be published. Required fields are marked *

More Stories
canadian mortgages
Majority of Canadian Buyers Borrowing Their Maximum Approved Mortgage
Copy link